Ernest Hemingway wrote there are two ways to go bankrupt: gradually, then suddenly. The winding-up process once a Chapter 7 petition is filed can be gradual too, but it appears the end of that road is finally in sight in the bankruptcy proceedings of Zayat Stables, Ahmed Zayat personally, and his family.
In late May, the Zayat parties and Donald Biase, trustee of the Zayat personal bankruptcy, negotiated a $1.5 million settlement agreement to resolve disputes among them, to which no objections were filed. Now Zayat Stables has reached agreement with its trustee, Jeffrey Testa, and its largest creditor by far, MGG Investment Group and affiliated entities.
DOWNEY: Zayat Trustee Seeks Approval of $1.5 Million Settlement
The Zayat Stables settlement will resolve what is known as an adversary proceeding brought in the New Jersey bankruptcy court by MGG wherein the creditor sought to except from discharge all of the debts owed to it based on allegations of false pretenses, false representation, actual fraud, and willful and malicious injury. Zayat denied the allegations.
Testa is holding about $1.25 million, of which $1,025,145 will be paid to MGG. According to court documents, the money consists almost entirely of proceeds of property secured by MGG's liens paid into Testa's trust account by Lexington forensic accountant Elizabeth Woodward, who was assisted by consultant Gatewood Bell when in 2020 she was appointed receiver in Fayette Circuit Court.
As of Sept. 30, 2020, Woodward had collected more than $1.47 million in purse proceeds and other funds but had disbursed over $900,000 for board bills, veterinary expenses, administrative fees, and commissions, according to previous BloodHorse reporting. She went on to marshal other assets under the supervision of the bankruptcy court in New Jersey after the Chapter 7 cases were filed.
The bulk of the Zayat Stables settlement funds, another $5 million, will be paid by the Zayat parties to resolve all claims with MGG and the Chapter 7 Trustee, with $3 million paid upfront and another $2 million deferred. MGG is deemed in settlement documents to have an allowed claim of at least $27,167,890.22, which is secured by what the trustee essentially described as unassailable liens on all Zayat Stables property.
From those monies, MGG will pay Testa $271,500 out of the initial payment and $181,000 from the deferred payment and has agreed the cash can be used to satisfy certain administrative expenses of $185,981 to Epiq eDiscovery Solutions, Continental Group, and Testa's attorneys and accountants.
There is a carve-out of $30,000 for unsecured creditors, while Testa's attorneys, McCarter & English, have a pending claim for services of more than $500,000 that, based on available court records, has yet to be ruled on by Judge Vincent Papalia, who presides over all the Zayat bankruptcy cases.
It is not unusual for Chapter 7 cases to yield no payment to unsecured creditors, and secured creditors almost always fare better than unsecured ones.
The bankruptcy settlements, if approved and carried out in their entirety, resolve claims brought against Ahmed Zayat, who bred and owned 2015 Triple Crown champion American Pharoah; his wife Joanne Zayat, daughter Emma and son Benjamin, who faced lawsuits in New Jersey state court; daughter Ashley Weiss, a defendant in a lawsuit in Florida; son-in-law Glenn Weiss, who was sued in New York; son Justin; brother Sherif, who was involved in real estate in Egypt with Ahmed Zayat; and the family-owned JPZ Holdings. In settlement papers, they are described collectively as the Zayat parties.
Documents filed this week reveal the Zayat Stables case was largely resolved on June 23 when retired U.S. Magistrate Judge Mark Falk conducted a mediation session with MGG, the trustees of both Zayat bankruptcy cases, and the Zayat parties.
Testa wrote in a document seeking court approval of the deal he believes the settlement is in the best interest of all creditors and that all parties shall be deemed to have granted global releases to the others.
However, the settlement will not be deemed to be effective until the agreement is approved by the bankruptcy court and is final and non-appealable; until the initial payment of cash of $1,025,145.20 has been transferred from Testa's account to MGG; and until agreed security arrangements are in place. If these things do not occur, the agreement will be deemed void, and MGG’s collection rights will be retained.
Emotions, as well as money, can be at stake in any given legal dispute. All memorabilia in the Chapter 7 Trustee’s possession, ownership of which has been disputed by the Zayat parties, will be deemed abandoned, or released, by the trustee and turned over to the Zayats.
The deadline for filing objections to the Zayat Stables agreement is Aug. 16, and court approval of the settlement is more than likely to occur on Aug. 23 if the settlement is uncontested.
